We are approaching almost three years since the last time the stock market underwent a classic correction, which is generally defined as a pullback of at least 10 percent. According to CNN/Money, a correction happens on the average of about every 18 months. Thus, statistically we are more than due at the present time. Note that we are not talking about the end of the bull market which has lasted over six years. The question is: will this correction come in the second half of the year?
For the first half of this year, the stock market has treaded water. This is in contrast to the rest of the bull market in which gains have averaged close to 15% annually for the previous six years. One could argue that this “breather” is a correction, even though there is not a classic loss in value. Another question follows: Why would stocks be stagnating when the economy is picking up steam? Right now there are two factors holding back stocks — higher rates and international pressures, most recently the crisis in Greece. It is not surprising that stocks are weak in light of the issues Greece and Europe are facing. Interest rates and oil prices have also fallen as the crisis has unfolded.
As for rates, stocks have long benefited from super low rates. Now that rates may be rising in the long run due to a better economy, that benefit may be reduced. Of course, it is not like rates are high right now, especially from a historical perspective. Just keep in mind that rising rates do not affect only the real estate sector. They can have a profound influence on all markets. Right now rising rates are actually benefiting real estate as consumers rush to purchase homes to beat the rate increases.
The Markets. Rates on home loans fell last week for the first time in nearly a month in response to international events. Freddie Mac announced that for the week ending July 9, 30-year fixed rates fell to 4.04% from 4.08% the previous week. The average for 15-year loans decreased to 3.20%. Adjustables were also lower, with the average for one-year adjustables falling to 2.50% and five-year adjustables decreasing to 2.93%. A year ago, 30-year fixed rates were at 4.15%, close, but still higher than today’s levels. Attributed to Sean Becketti, Chief Economist, Freddie Mac –“Yields on Treasury securities declined this week in response to investor concerns about events in Greece and China. Overseas volatility is likely to persist for some time, providing some restraint on potential U.S. rate increases. In addition, the minutes of the June meeting of the Federal Open Market Committee suggest the Federal Reserve will proceed cautiously—monitoring events both overseas and in the U.S. to ascertain the appropriate moment to begin raising short-term interest rates. As a result, rates on home loans may remain in the neighborhood of 4% for a while.” Rates indicated do not include fees and points and are provided for evidence of trends only. They should not be used for comparison purposes.
Current Indices For Adjustable Rate Mortgages
Updated July 10, 2015
|Daily Value||Monthly Value|
|6-month Treasury Security||0.08%||0.09%|
|1-year Treasury Security||0.25%||0.28%|
|3-year Treasury Security||0.95%||1.07%|
|5-year Treasury Security||1.58%||1.68%|
|10-year Treasury Security||2.32%||2.36%|
|12-month LIBOR||0.770% (June)|
|12-month MTA||0.183% (June)|
|11th District Cost of Funds||0.687% (May)|
Sixty-five percent of recent survey respondents feel home ownership is a dream come true or an accomplishment to be proud of. But when it comes to achieving that dream, many consumers may sit on the sidelines because they’re overestimating what it takes to make it come true. Many consumers have misperceptions about the credit score, down payment, and income requirements needed to qualify for a home loan, according to a survey released by Ipsos Public Affairs of more than 2,000 U.S. adults. A high percentage of home owners are still unaware of recent efforts by lenders and the government to enhance the availability of credit through lower down payment programs. Two-thirds of consumers surveyed believe they need a very good credit score to purchase a home, with 45 percent believing a “good credit score” is over 780 (many lenders consider scores over 660 to be “good”). Consumers also tend to overemphasize credit scores as a single factor that determines whether they’ll be able to buy a home. But a credit score is not the sole criteria. Many lenders will consider a loan applicant’s entire financial picture, including income, assets, debt-to-income ratio, credit history, credit scores, and the amount of the loan compared to the value of the property. Also, the survey found that consumers tend to overestimate the down payment funds needed to qualify for a home loan. Thirty-six percent of respondents said they believe a 20 percent down payment is always required, the survey showed. However, down payment options are available as low as 3 percent or 3.5 percent for some loan programs. Source: BusinessWire Note: Even zero down for VA and Rural Housing!
Existing-home sales rose in May to their highest pace in nearly six years, largely attributed to a big rise in the number of first-time home buyers, according to the National Association of Realtors®’ latest housing report. All major regions saw sales increases in May, with the Northeast seeing the most notable rise. Existing-home sales – measured as completed transactions of single-family homes, townhomes, condos, and co-ops – climbed 5.1 percent to a seasonally adjusted annual rate of 5.35 million in May. Sales are 9.2 percent above last year at this time. The market share of first-time home buyers rose to 32 percent of transactions in May, matching the highest share since September 2012. A year ago, first-time buyers represented 27 percent of all buyers, NAR reports. “The return of first-time buyers in May is an encouraging sign and is the result of multiple factors, including strong job gains among young adults, less expensive mortgage insurance and lenders offering low downpayment programs,” says Lawrence Yun, NAR’s chief economist. “More first-time buyers are expected to enter the market in coming months, but the overall share climbing higher will depend on how fast rates and prices rise.” As the supply of homes remain tight, homes are selling fast and price growth in many markets continues to teeter at or near double-digit appreciation, Yun notes. “Without solid gains in new home construction, prices will likely stay elevated,” Yun says. Source: Realtor.com
Townhome construction remains low, but builders remain optimistic that an upswing is on the horizon for the sector. Single-family attached starts totaled 14,000 for the first quarter of this year, mostly unchanged from a year prior, according to an analysis from the National Association of Home Builders of recent U.S. Census data. The market share of new townhomes continues to stand at 11 percent of all single-family starts – compared to 14.6 percent during the peak which was reached in the first quarter of 2008 in townhouse construction in the last two decades. “Despite the drop in market share during the Great Recession, the share for townhouse construction is expected to increase in coming years – with occasional ups and downs,” the builder trade group notes on its Eye on Housing blog. “Recent weakness in production has been associated with reduced levels of first-time home buyers. The long-run prospects for townhouse construction are positive given large numbers of home buyers looking for medium density residential neighborhoods, such as urban villages that offer walkable environments and other amenities.” Source: National Association of Home Builders